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Thursday, 16 August 2012

Fiddle while the money burns.

TAX dodgers. Don't you just hate them?

Of course we do, which is why it's guaranteed good headlines and vote-winning to announce a crackdown and publish a gallery of 'most wanted' tax fraudsters, which is what Her Majesty's Revenue and Customs has done today.

(In fact HMRC published it a month ago, but forgot to tell anyone and has only just put out a press release. Still, better late than never.)

Most of the rum bunch in the photo absconded after being charged with or during a trial for tax dodging, and a lot of them are accused of using the rules to carry out VAT fraud amounting to many millions of pounds.

It works like this: a criminal sets up a company and imports some goods from abroad. There is no VAT on imports, so the criminal pays cost price. The goods are sold on and the criminal charges 20 per cent VAT on top. Businesses are supposed to pass this on to HMRC, but then the criminal will either disappear with the cash or pass the goods on through a number of co-conspirators, all of whom charge VAT on the goods so they increase in value, until they export them to an innocent company which pays the now-inflated price. Then the criminals - who have until this point followed all of the taxman's rules - disappear with the profit.

If you do it enough you make big money very quickly, which is why the worst offender in the HMRC list is thought to be on the run in Dubai with £200million.

Exchequer Secretary David Gauke - the minister who recently said anyone paying a tradesman cash was contributing to tax evasion - said: "These criminals have collectively cost the taxpayer over £765m and HMRC will pursue them relentlessly."

Good stuff. It's a lot of money and we'd like it back.

Except £765m isn't very much compared to the £35billion another group of tax-dodgers have cost us.

That is, for clarity, 45 times more money than the first lot of fraudsters are responsible for. Some people think it might even be £95bn, which would be 124 times as bad.

The gang which has cost us this money has done it in a variety of interesting ways, all of them entirely within the taxman's rules.

It has advised its own senior staff to set up service companies to reduce their tax bills, caused the sacking of 3,300 tax inspectors, and after its boss had 107 lunches with big business enabled those firms to wriggle out of paying the tax they owed us.

In particular, this organisation helped Goldman Sachs to write off £20m in tax interest. It ensured pharmacy firm Boots paid just three per cent tax last year on £475m profit. It allowed Cadbury, Walkers, Tesco, HSBC and a host of other big corporations to avoid hundreds of millions in tax bills.

The ringleader of this group has avoided paying tax himself. He bought a house in London for his family in 1998, and extended his mortgage on it in 2000 to buy a second home for £445,000 cash in Cheshire.

A year later he was elected to Parliament and told officials the family house was his 'second home' and began claiming mortgage interest payments on it. Two years later, he sold the London house for £1.48m - a £748,000 profit.

This man bought a new London house, and took out a £450,000 mortgage on the Cheshire home he already owned. He told authorities this was now his 'second home' and carried on claiming expenses for it - a total of around £100,000 in 10 years.

Those expenses included the mortgage and things like £225 to jetwash the outside of the building, £150 to clean carpets, £180 to sweep chimneys, and £47 for two DVDs of himself giving a speech about value for taxpayers' money.

All of those bills will have involved some form of tax, but the man avoided it by getting us to pay it for him instead.

The man was investigated by the Parliamentary authorities, who decided he had been within the rules but asked him to pay back £1,193 for use of a chauffeur and mortgage overpayments. The capital gains tax issue, much more serious, was left to HMRC to investigate.

It's been quiet since then, but seeing as the man in question is Chancellor of the Exchequer and the gang I'm talking about is HMRC, it's sort of unlikely they'd come down hard on him for telling the taxman one thing and his employers something else.

All of the people I've mentioned, just like those VAT fraudsters, were following the rules - up to a point.

So are the rules going to be rewritten? Are MPs going to be told that their financial affairs need to be the same at work as they are at the tax office? Are big corporations going to be told that private equity debt can't be offset against tax bills? Are bankers going to be forced to have their salaries and bonuses paid and taxed in this country?

Well, no.

Instead HMRC has a new boss, a civil servant called Lin Homer. At Birmingham City Council she presided over a city where electoral fraud was so rife it "would have disgraced a banana republic". She ran the Immigration Directorate which accidentally released 1,000 foreign criminals. Then she ran the UK Borders Agency which was forced to have an amnesty for 100,000 illegal immigrants on the basis it had no idea where they were.

And this is described as a "strong track record". Which it is, if you're talking about incompetence.

Under her direction so far HMRC have released pictures of some VAT fraudsters and four weeks later worked out they need to mention this to newspapers if they want anyone to know about it. Oh, and they'd quite like Average Joe to stop paying the window cleaner in cash.

All in all, HMRC make the £765m VAT fraudsters look like amateurs. It takes true dedication and effort to avoid collecting £10bn in criminal tax evasion, blind devotion to let major corporations avoid paying another £25bn, and world class obtuseness to overlook the fact even the man in charge of the economy has avoided it.

We all hate tax dodgers. But wouldn't it be nice if the taxman wasn't one of them?